Friends in the southern entrepreneur ecosystem and economic development got into a discussion on a Spring pandemic day about a recent headline where a coastal city in the South was offering $2,000 to incentivize people with tech talent to move to the city. Is $2,000 going to attract the kind of talent that good tech startups really need? Is that small amount of money going to cover moving expenses, help cover student loans from college or an expensive code camp to gain those valuable tech skills?
I can’t even imagine approaching the local government with this kind of individual incentive in my conservative city, even with the small amount of money in the total budget of this incentive program. According to a Post and Courier article on May 18, 2020, Charleston, Charlotte and Raleigh are the top three cities in America in adding tech jobs. None of these cities have nor require incentives for individual people to relocate. To be clear, finding tech talent was extremely hard before the pandemic and few companies furloughed the tech talent on staff.
Let’s suggest alternative solutions and give example stories of putting more money / more capital in the hands of the local entrepreneurs so they can pay more competitive wages and attract and retain talent. And that city with the tech talent incentive could put that $100,000 budget towards entrepreneur education programs for minorities.
Asking the Right Questions and Attracting the Right Resources For Startups
With twenty years of experience in startup ecosystem building experience in four North Carolina cities, my thoughts are around what the region could do to attract new sources of capital for the entrepreneurs that already exist in the city so the startups can afford to hire good tech talent. Which happens first, a cluster or critical mass of successful startups or does the tech talent have to already be present in the city to grow and scale startups? Or the other problem of relocating tech talent for one job but where else can they work if that job isn’t a good fit? Or where will the trailing spouse work?
Again, let’s discuss the other chicken or the egg dilemma? Are startups in town doing the right things to prepare for and attract local and regional capital? What is the region doing to find high net worth individuals and educate them about the potential and risks of angel investing? Or do the investors in town prefer to invest outside of the region because they believe in the local deal flow? Not EVERYTHING about angel investing is about making more money. Some high net worth people become angel investors to grow the local economy to create job opportunities for younger generations. This is true with my angel network, WALE in Wilmington, NC.
As Charleston knows, new entrepreneurs and potential angel investors have smoother entrances to the market if previous local startups have exit events like big acquisitions or Initial Public Offerings (IPO) on Wall Street. (Not to mention, entrepreneurs who have exit events often make great angel investors themselves with a better tolerance for risk.) Charleston’s startup economy got a significant boost after local companies like BenefitFocus (IPO), Blackbaud (IPO) and several others had exits and returned great profits to the regional angel investors. Suddenly there was also more infrastructure like buildings for non-profit orgs that help startups and new for-profit coworking spaces to increase the local density of entrepreneurs.
Success in attracting startups and tech talent in your city can be achieved by ONE big win such as Dell Computer in Austin. Can you really name another big tech win in Austin? Yet Austin is seen as a tech startup hub for relocating startups from California right now, who are escaping the very expensive costs of living in Silicon Valley. I first went to Austin in 2001 for the South by Southwest Festival for the tech conference and quickly fell in love with the Live, Work, Play and quality of PLACE. I have tried to replicate aspects of Austin in my work in Asheville and Wilmington.
Finding Investors in Your Backyard
Sure, every city wants to retain and engage local investor capital into the local economy. Are the entrepreneurs looking in the right places to find risk tolerant high net worth people? Are the lawyers and accountants in town playing a role in the entrepreneur ecosystem? Lawyers in Raleigh play a HUGE role in introducing their startup clients to potential angel investors and venture capitalists. Fred Hutchison of Hutchison Law in Raleigh alone has donated over $1 million to the ecosystems in the Southeast over the last 30 years. Sure Fred has a vested interest in his local startup clients finding the help they need to grow and potentially need additional legal assistance from his firm. As one of the founders of the Council for Entrepreneur Development, Fred is known to make direct connections between startup clients and investors.
In the first year at the incubator in Wilmington in 2013, I remember getting a random call at the facility from a local doctor. He invited me to speak in front of a room full of doctors who had the potential to become angel investors who met for a monthly dinner. At the time, within six months of opening the incubator, I had not had enough time to develop success stories in the local ecosystem to build my case with these potential investors. I could only tell them about the process I was using to nurture the startups and how I was supporting the ecosystem.
At the last minute before the dinner event, I invited the most experienced entrepreneur who was involved in our programs at the incubator. One of the people attending the dinner had been “overserved” some extra wine and he attacked the ecosystem process. To summarize and censor a bit, he said, “Everything you just said is BS because without an engineering program, how could Wilmington ever have successful startups?” I turned to the entrepreneur I had brought to the event and asked him how many people on his staff of 35 people had engineering degrees. None was the answer. The entrepreneur proceeded to give a pitch about his startup at the dinner and landed 12 commitments by the next day worth over $360,000 of new capital from the attendees, including the curmudgeon. At the time, an unexpected injection of $360,000 was a significant impact in Wilmington that was just starting the process of building a new ecosystem.
On the one year anniversary of the incubator in Wilmington, we created our own venture capital conference in Wilmington called Coastal Connect in 2014. We welcomed Hugh Forrest, Executive Director of the South by Southwest Tech / Interactive Conference (SxSW), as our opening Riverside Chat with 300 people attending a September conference at the beach. People still talk about that event even six years later and this successful event with VIP speakers from outside of the region gave our organization more local and regional credibility. Hugh eventually invited one of our startups to Austin to present at SxSW. ( I had attended ten SxSW conferences and had developed a friendly relationship with Hugh when I worked in Asheville. So he answered the call when I invited him to the beach and we gave him the VIP treatment.)
Are the early startup stories being told?
I was recruited to Wilmington in 2013 to make the new idea of a local university-based incubator the focal point of the community based entrepreneur ecosystem. The Chancellor of the university was frustrated that the graduates had to move away after graduation for better jobs when they wanted to live at the beach. It is very difficult for a tourism destination like Wilmington to build buzz about the business sector when Charlotte, Raleigh and Durham companies get all of the headlines within North Carolina.
Who was championing the Wilmington startups to the local and regional media and to the statewide organizations and government sponsored organizations? Did local people believe in the startups in the community? Were they not willing to spend political and relationship capital to open doors for young entrepreneurs? Turns out, no one was doing this work on a regional basis, beyond the city and county lines. Again, there were few examples of local high profile homegrown business success stories. And it is indeed work that takes real time and requires spending valuable political capital for entrepreneurs that you have known for less than a month because entrepreneurship requires speed. The ecosystem leaders have to work at the same pace, high energy level and tone as the entrepreneurs or the entrepreneurs will not truly engage in the community but will isolate at the office.
One of the early stories at the university based incubator was with an African American professor who was an expert in facial recognition software. While the information technology classes were taught under the business school, this professor had not truly networked to the VIPs on the board of the business school. After I reconnected with an old friendly Raleigh-based Venture Capitalist over lunch, I simply arranged for him to take a tour of the facial recognition lab. This VC was also on the board of the business school but was not really knowledgeable about the capabilities of the facial recognition software and the buzz about the professor’s technology OUTSIDE of Wilmington. The VC was impressed with the capabilities of the lab and soon he led the successful search for a multi-million dollar round of capital and joined the staff. The VC is currently the President of the company that eventually raised $3 million from AFLAC Insurance. I also introduced the software company execs to the NC Tech Association and they were rewarded with a statewide Top Ten Startups to Watch Award and this company recently presented at a high profile Insurance Tech / FinTech conference in Charlotte.
Although no one pays me for this role, I have also become the unofficial evangelist and public relations person in the ecosystem to offer to get Wilmington startups media coverage through my relationships with Raleigh / Durham based WRALTechWire, Atlanta based Hypepotamus and Wilmington even has our own section in DIG SOUTH. And we now have our own hyperlocal startup news site called 91omg,biz. (910 is the Wilmington area code.) Our startups have appeared in Entrepreneur Magazine, Forbes Magazine and will have some national TV media exposure when the pandemic ends. The startups can then use this media coverage to attract potential investors and clients. (The truth is that the ecosystem organization is often the focus of the media buzz until a few of the startups begin to hire and scale.)
Help the startups expand sales and investor relationships outside of the county lines
In Wilmington, we have developed what we call the Coastal Corridor. We know the real resources for entrepreneurs in North Carolina are in the Raleigh / Durham market. So we have worked for the last seven years on developing a two-way relationship with the bigger market that is 2 ½ hours west on Interstate 40. We make a real effort to car pool but we could use a bus if anyone is looking to donate. Last year, we arranged for 17 free tickets for Wilmington entrepreneurs to attend the annual Bull City Venture Partners Venture Outlook event in Durham.
We have invited over 60 different angel investors and venture capitalists to Wilmington over the last 5 years since the creation of the Network for Entrepreneurs in Wilmington (NEWilm.com). The secret is that if we know that these Raleigh / Durham investors have a beach house, they NEVER turn down a Thursday evening invitation to the beach to speak to our entrepreneurs. Sure not all of these investors write checks, but they serve as a great education for the local entrepreneurs. And a few have actually invested in local companies like UnTappd, EasyVote Solutions and Permits.com that attend ALL of our events from Myrtle Beach.
In North Carolina, we have the Council for Entrepreneurial Development (CED) and they host an annual conference usually for Raleigh – Durham startups since that is their geographic territory. But since I had worked in coordination with CED in my work in Charlotte and Asheville, I knew they would accept outside applications and put the best startups from around the state on the stage at their conferences. This year, four Wilmington entrepreneurs presented at the CED conference where, before 2013, the majority of coastal entrepreneurs did not even know they were allowed to apply for presentation slots.
Another validation point for innovative startups are Small Business Innovation Research Grants (SBIR). The North Carolina leader of the SBIR grant training organization had not been invited to Wilmington in over seven years. While we are still struggling to increase the number of grants won, the number of applications have increased. The entrepreneurs learn valuable lessons on how to differentiate their products from others in workshops and learn what these large federal budget offices are looking to purchase. The grants are available from $250,000 in early phases to millions of dollars of non-dilutive funding. We now have great attendance for these SBIR workshops in comparison to cities with similar population size.
And the most extreme move? In November of 2015, we created our own Angel Investor Network to make sure local funds were invested locally and regionally. The Wilmington Angels for Local Entrepreneurs (WALE) has now invested in 14 regional deals at over $1 million. Of course that money helps attract and retain talent with better wages. It also serves as validation for other regional angel networks for our portfolio companies. They can approach Raleigh – Durham investors with the validation of capital from Wilmington investors versus being empty handed where the regional investors wonder why there is no local money in the deal. To be clear, I am not a high net worth individual / Angel investor but I manage the process of finding the deal flow for the WALE Angel Network Investors. There are two other local angel networks in Wilmington with the Wilmington Investor Network (WIN) and VentureSouth.
Validation of Startups from the Outside can Create the FOMO for the Conservative Locals
When I got to Wilmington in 2013, very few of the statewide organizations were traveling to the coast to host startup business events. The North Carolina Tech Association was the first organization I reached out to invite to participate in a potential event in the new incubator. A few months later, one of our coastal startups, NextGlass / UnTappd, won a statewide award at a formal awards dinner in front of 800 technology executives. (Since 2013, NC Tech Association has had a 100% increase in the number of Wilmington paid memberships as the organization is based in Raleigh.)
North Carolina has another unique organization called NC IDEA. NC IDEA has a quarterly competition across the state for six $50,000 grants that are non-dilutive, meaning they don’t take any equity shares in the company. Before the incubator in 2013, no Wilmington company had ever won one of these grants. And NC IDEA had stopped coming to Wilmington on the quarterly tours of the state to meet startup entrepreneurs to apply for the grants. Wilmington has become much more successful in winning these grants as the entrepreneurs have become more familiar with the process and Wilmington now has representation in the room when the decisions are made as we serve on these grant review committees. For example, a startup called Electronic Lab Logs won a grant in the most recent round in Spring 2020. NC IDEA also has smaller Micro grants and now grants for ecosystem orgs in North Carolina.
I have several more examples of events that improved the odds that local startups would attract new clients and new investors if you are interested. The Tough Love Investor event, the Aspirin / Pain Point of local major employers event and even the Mystery Startup Theater event have all had positive outcomes.
The goal of all of these efforts, events and relationships is a form of validation. If the startups from your town are validated at the statewide and regional level, this certainly peaks the interest of the usually conservative high net worth individuals as they don’t want the FOMO that they missed the local deal that became the unicorn. A local startup wins a statewide grant, award or are invited to present at the South’s largest venture capital conference? Yeah that makes a difference in the ability of the startup to attract potential clients, potential investors and then be able to pay more competitive wages.
Jim Roberts is the Founder of the Network for Entrepreneurs in Wilmington (NEW), Wilmington Angels for Local Entrepreneurs (WALE), the 3 Sips of Advice video podcast and 91omg,biz for local startup news at the North Carolina beach. He has built entrepreneur support organizations in Charlotte, Asheville, Durham and Wilmington over the last 20 years. Jim can be reached through LinkedIn and Twitter – @RedSpireUSNC
Jim is also a subscribing member of DIG NATION.